Problems
A. Compare and contrast the following types of economic evaluation, and provide an example of each: A) Cost of illness studies; B) Cost identification; C) Cost minimization studies; D) Cost consequence analysis; E) Cost-effectiveness analysis; F) Cost-utility analysis; and G) Cost-benefit analysis.
B. The local Department of Public Health (DPH) is starting a set of programs aimed at reducing childhood obesity among young children. The programs will be completely funded by a new special tax earmarked for these programs only. An expert panel recommends 6 (six) alternatives (A to F) for consideration depending upon budget size. All alternatives are mutually exclusive; i.e. can be implemented as a stand-alone project. Using cost and effectiveness data for these projects in the table, first complete the table and then respond to the questions below:
|
Cost
($)
|
Effectiveness
(# of kids)
|
Cost- Effectiveness Ratio
|
Incremental Cost
|
Incremental Effectiveness
|
Incremental Cost- Effectiveness Ratio
|
|
C
|
E
|
C/E
|
ΔC
|
ΔE
|
ΔC/ΔE
|
|
10,000,000
|
12,000
|
|
|
|
|
|
20,000,000
|
17,000
|
|
|
|
|
|
30,000,000
|
20,000
|
|
|
|
|
|
40,000,000
|
24,000
|
|
|
|
|
|
50,000,000
|
35,000
|
|
|
|
|
|
60,000,000
|
41,000
|
|
|
|
|
C. The Department of Revenue estimates that the special tax dedicated to funding Director's Initiative for 2014 will be $35 million. Guided by purely economic effectiveness concepts, which project(s) should the Director select and why? (The Director cannot spend more than the annual tax revenue; however, leftover funds can be carried over to the next year.)
o Will your answer change if the tax revenues were to be $70 million? Why?
o Will your answer to Question 2 change if the tax revenues were to be $120 million? Why?
D. Using the following table, complete a cost-effectiveness analysis to respond to the questions below:
|
Treatment
|
Cost per Treatment
|
QALYs Gained
|
|
|
800
|
34
|
|
|
400
|
29
|
|
|
0
|
0
|
|
|
1000
|
39
|
|
|
200
|
12
|
|
|
600
|
29
|
o Rank the treatments by health benefit (more QALY = more benefit).
o Identify and indicate which treatment(s) are dominated for elimination.
o Show your work in calculating the ICER between each treatment option and the next most expensive option, eliminating treatment options that are not economically rational in the process due to extended dominance (higher ICER than next most expensive treatment).
o Given your calculations, and I recognize there is limited information provided so do not over-complicate, make a recommendation on which treatment should be pursued and why.
E. Consider that two drugs are available for the management of diabetic patients. The first drug costs $4,000 over 10 years. The new drug costs $7,600 over 10 years. The outcome measure, Quality Adjusted Life Years (QALY), with the first drug is 8.0 over 10 years for diabetic patients, but the QALY will improve to 9.2 with the new drug. Show you work and calculate the ICER for the new drug.
F. A public health smoking cessation program is designed to last for 3 years. The cost of implementing the program in Year 1 is $25,000; in Year 2 is $23,000; and in Year 3 is $45,000. Calculate the present value of the entire program assuming a discount rate of 4% and costs occur at the end of each year. Show your work.
|
Year
|
Cost
|
Discount Factor
|
Present Value
|
|
1
|
$25,000
|
.9615
|
|
|
2
|
$23,000
|
.9246
|
|
|
3
|
$45,000
|
.8890
|
|
|
Total
|
$93,000
|
|
|
G. The per capital annual cost of acquiring and maintaining a CT scanner is $427,650, while the per capital medical benefits are $346,125. What is the benefit-to-cost ratio for this project? Should it be pursued?
H. The health program budget of a voluntary agency is $60,000. The agency wants to adopt interventions from the list of four interventions in the table below to maximize health improvements. Which of the interventions should the agency adopt? Why?
|
Intervention
|
Cost-effectiveness Ratio
|
Budget Needed
|
|
A
|
420
|
$31,000
|
|
B
|
110
|
$45,000
|
|
C
|
250
|
$15,000
|
|
D
|
600
|
$14,000
|
I. The following table, in which all figures are in millions of dollars, summarizes the results of a recent cost-benefit analyses of five government projects:
|
Project
|
Social Benefits
|
Social Costs
|
Net benefits
|
B to C Ratio
|
|
A
|
$100
|
$125
|
|
|
|
B
|
110
|
100
|
|
|
|
C
|
250
|
125
|
|
|
|
D
|
100
|
25
|
|
|
|
E
|
200
|
100
|
|
|
o Compute the net gains (i.e., net social benefits) and the benefit-cost ratio for each project.
o If the government wanted to maximize social welfare (i.e. net social benefit), which one project listed above should be undertaken? Briefly explain.
o If the government wanted to maximize the return on its investment, which one project listed above should be undertaken? Briefly explain.
o If the government's budget was constrained to $125 million, which project or projects should it choose in order to maximize social welfare? Briefly explain. [Note: For purposes of answering this question, assume that social costs and the government's budgetary costs are identical.
J. An insurance company wishes to determine which of five new procedures should be implemented. They decide to perform a Cost-Benefit Analysis to help them make their determination. The results of the analysis are shown in the table below.
Present value of Gains, Losses, and Costs of 5 different procedures (in thousands)
|
Gains
|
Losses
|
Costs
|
Benefits
(Gain - Loss)
|
Net Benefit (Benefit - Cost)
|
|
200
|
25
|
100
|
|
|
|
200
|
50
|
200
|
|
|
|
450
|
50
|
300
|
|
|
|
100
|
10
|
100
|
|
|
|
650
|
0
|
500
|
|
|
o If the company decides to implement all procedures with positive net benefits, which procedures will be implemented?
o If the company decides that it can have total costs of up to $550,000, which procedures should be implemented in order to maximized total net benefits?
K. The HRQL scores of diabetic patients with and without treatment are given in the table below. Complete the table to calculate the effectiveness of treatment (compared to no treatment) over these five years:
|
Year
|
HRQL Score without Treatment
|
HRQL score with treatment
|
Difference
|
|
1
|
.8
|
.9
|
|
|
2
|
.7
|
.9
|
|
|
3
|
.6
|
.9
|
|
|
4
|
.5
|
.8
|
|
|
5
|
.4
|
.8
|
|
|
TOTAL
|
|
|
|
L. A middle-aged person undergoing an amputation is expected to have a life expectancy of 30 years as a result of the procedure. However, he/she will remain in a less than perfect health state during the remainder of his/her life. It is assumed that the health state score will likely be between 0.6 and 0.8. Calculate the quality adjusted life expectancy for the health state range above. Show your calculation.
M. Calculate the life years lost due to car accident for a 28 year-old driver using table below.
|
Age (years)
|
Life expectancy at age
|
|
15-24
|
78.5
|
|
25-34
|
79
|
|
35-44
|
79.6
|
|
45-54
|
80.6
|
|
55-64
|
82.3
|
N. Listed below are the course of events during an Influenza season. SKETCH THESE PROBABILITIES IN A DECISION TREE MODEL.